Price Bars

Thanks, They I'll check it out!!!

 

I realize from the response this thread has gained so far, that nearly nobody is reading this thread. After all, who in their right mind posts pages of longwinded observations that don't get down to a concrete resolution?

I admit that I didn't handle the key questions very well in the "Conclusions" post. So let me add to that here by expanding on what I've learned, and some things that I haven't talked about yet.

If time and tick bars are inadequate for showing trends, then what type of bars are better? I alluded to point and figure charting which has some drawbacks for realtime use. In pondering the idea of point and figure charting I happened upon an idea. What if each bar had a predefined range. And what if each bar updated in real time? After working through the idea I came upon what I have dubbed "Equal Range" charts. What are Equal Range Charts?

 

I haven't seen the idea of Equal Range charts talked about anywhere else, though I'm sure it has been conceptualized by some because it is really a simple idea. I also haven't seen this type of charting made available in any of the software packages.

Since I have written my own charting package I decided to see what Equal Range charts would look like on an actual chart. I found that they do what they are supposed to do: they filter out minor movements (noise), while providing more emphasis on trending moves. Trends have many Equal Range bars representing them now, rather than the few that represent them in minute-based charts. The drawback is that in wider congestion, regardless of the range size that you select, you still get bars going back and forth rather than trending. But compared to tick or minute bars this type of charting is a vast improvement. So although Equal Range charts are a step up from point and figure charts, they still don't filter out all of the non-trend moves. They are a good tool, however.

Let's say you wanted to view an Equal Range chart with a range of 2 points on the ES for each bar (see attached graphic). Each bar will be at least 2 points, but could be more if price gaps or has wider moving ticks. The equal range bars keep updating until the desired 2 point range is met or exceeded, then a new bar is formed. Because of this behavior, each bar will close with the bar's close price equal to either the high or the low of the bar. And although my charting package doesn't draw standard indicators like Stochastics, MACD, RSI or even a good old moving average, I can surmise that these indicators would give much cleaner signals on an Equal Range chart than on a time or tick based chart. That's the theory anyway.

 

ES3U 2 Point Equal Range Chart.

 

It has been brought to my attention that Equal Range charts, better known as "Range Bar" Charts, are currently available in <at least> a couple of charting packages. Apparently the bars draw when the range completes in these packages, so it seems to suffer from the same weakness found in Point and figure charting in that regard. The packages that I've been told contain these types of charts include NeoTicker and Fibonacci Trader. There may be others that I'm not aware of. It's not too surprising to me to hear that these bar types have been included in various charting packages, because the concept of equal range bars is very easy to understand.

 

***
Tripack;

I study most time frames;
as far as minute bars or candles like 30 minute candles at a time & longer.

Bars or candles put a helpful picture on price;
helps identify trends or sideways trends. Price is one of the best indicators, including trends there is.

Looked about a minute + at the September red bar
in Active Trader magazine ,October03,of;
S & P 500 average monthly performance 1978-2002.


''The plans of the diligent tend only to advantage''-Solomon,trader king.

 

This is a post by radly212:

A price study called Mbars is almost like Renko but different in some ways and If we could implement this concept I believe it would be an improvement. The explanation below comes from a February 2003 article in SFO magazine by Desmond MacRae. You might want to take a look at the total article to better understand it.

“They look like standard bars, but are different in three ways. One is that they are always equal in height. This is because they are based on specific price ranges selected by their users. If, for example, the price range chosen is six ticks, which in the S&P 500 E-mini futures contract equals $75, all of the bars represent a price value of $75.

The second difference is that the open of a new bar is always one price tick above or below the close of the previous bar. This is because a new bar does not begin until the old bar has been completed, which can only occur when a price tick exceeds the range set by the trader using them. While opens can appear anywhere on MBars, closes are always at the tops or the bottoms of these bars.

The third difference is that MBar charts have no gaps. Say, for example, the MBar value for the S&P500 E-mini is set at six ticks ($75). Say, too, that there is a sudden event that causes this contract to gap up 12 points from 910 to 922. This 12-point gap has a total of 36 ticks (each point equaling $50 is composed of four $12.50 ticks). On a six-tick ($75) MBar chart, this 12-point gap would be filled with seven six-tick “phantom” up-bars".

http://forum.esignal.com/showthread.php?s=&postid=14749

 

Found at

http://www.daytradingstocks.com/tradingforum/viewtopic.php?t=155


Momentum Bars
By: Danton Long

Momentum Bars are a completely new and unique adaptation of the standard bar charting technique used to record price transactions of stocks, bonds, commodities, futures, options and indexes.

Standard Bar charts, which display the high and the low price of recorded transactions in a vertical bar format over a time period selected by the person doing the charting. Typically, one trading day is the time period chosen, but time periods can be varied from seconds to year depending on the frequency, which a person chooses to trade or participate in a particular instrument under study. This can either be recorded on a sheet of paper or electronic representation (computer display) of a sheet of paper with a price scale on the vertical axis, a vertical line is drawn in an individual column that indicates the high to the low of prices for a particular period. Succeeding time periods are recorded in succeeding individual vertical bars drawn to the right of the initial bar, each representing a succeeding time period with ends of each bar marking the high and the low of each period.

In a more sophisticated variation of bar charting, the opening price for a selected time period is represented on a display as a horizontal line drawn perpendicularly to the left of the vertical price bar and connected to it. The closing price of the period is drawn as a horizontal line drawn perpendicularly to the right of the vertical price bar and connected to it. Each price bar with its open, high, low and close is distinct and separate from the previous price bar and from the succeeding price bar, because each price bar represents a distinct, separate, and unique period of time for which price transactions were recorded.

Another method of recording bar charts uses so-called ticks instead of time units. A tick represents a specific price event, which is each time a buyer and a seller effect a transaction recorded in the price series. This transaction can represent a single unit being traded or many units traded but in either case, a tick charts represents a distinct transaction. Thus, tick charts represent price transaction activity, not time. However, if 1, 2, 20 or any other number of units of value are traded at that price, the tick chart represents only the price at which a unit or units traded. If, for example, there are succeeding transactions at the same price, a tick stream of data records all of the transactions, and a tick chart will record each tick as a separate event even if all of the ticks occur at the same price.

Momentum Bars differ from both these bar charting methods because the factor driving the creation of a new bar is neither a specific period of time nor a specific number of ticks. Momentum Bars represent a specific price range that can be varied by the person doing the charting; just as specific lengths of time or number of ticks can be varied by the user to create bar charts and tick bar charts.
Price driven charting methods are not new to the field of technical analysis. They have been tried in many variations with limited acceptance. Market Profile, a patented charting method records price fluctuations in specific units of time. Typically in thirty minute intervals. Thus, the first half-hour of a trading day in labeled A; the second is labeled B and so on. Each different price in the first half-hour is record on a price chart by the letter A in a single vertical column. Prices in the second half-hour period are labeled B and posted in the next vertical column to the right, and so on throughout the day.

The purpose of Market Profile is to create a chart that describes the total price action of a day. Market Profile assumes that each day has a “profile” of price action that can be interpreted by the skilled user to define areas of “value.” In short, by defining relative levels of value the analyst or trader has a means to better anticipate future price moves. Market Profile does not resemble Momentum Bars at all.

Another price-driven charting system is point and figure charting which records a rising trend in prices with a series of X’s placed one on top of the other in the same vertical column. It records a falling market with a series of O’s in a succeeding vertical column. Each X and each O represent a fixed number of price units. No X and no O will be marked on a chart until there is a significant change in price. Point and figure charts do not have specifically defined opening and closing prices as bar charts and Momentum Bars do. Thus, they do not lend themselves readily to some of the 80 different charting tools described in Perry J. Kaufman’s Trading Systems and Methods (Third Edition), John Wiley & Sons, 1998, 703 pages.

Other price driven charting methods include: Kagi charts, which defines a price trend in a series of connecting vertical lines where the thickness and direction of the line are dependent on the price movement without reference to any particular time intervals. Three-Line break charts which display price trends as series of vertical boxes in varying heights defined by the changes in price movement without reference to any particular time intervals. And Renko charts, which display price trends as a series of fixed vertical box sizes without reference to any particular time intervals. Renko charts are similar to a Three-Line Break charts except that in a Renko chart, a line is drawn in the direction of the prior move only if a fixed amount (i.e., the box size) has been exceeded.

The usefulness of these charting techniques however, is limited in four ways. First, existing techniques configure data and provide study capabilities in relation to streams of data organized in minutes, days, weeks or monthly segments of time. Such techniques, unlike Momentum Bars, do not enable a user to configure and summarize data without reference to a pre-set time segment. Second, existing techniques that configure and display data without reference to a particular segment of time use abstract methods to display such data, or stack displayed data in continuous vertical segments to denote sustained price movements, or exclude opening and closing price information in their calculations. Such techniques, unlike Momentum Bars, do not enable a user to apply typical statistical and technical analysis studies i.e., moving averages and oscillators. Third, existing techniques that configure data in relation to streams of data organized in segments of time display accumulated data without regard to distribution. Such techniques, unlike Momentum Bars, consider every fragment of transaction data as relevant and meaningful information in the measurement and calculation of typical analysis studies and in a markets overall development. Fourth, no existing technique provides the capability to manage data streams where they can be organized to discount price distribution patterns that evidence little change, or systematize those that evidence relatively large changes and display them in a simplified, uniformly-formatted visual summary with the necessary data points typical statistical and technical analysis studies demand

....follows

 

Momentum Bars overcome those limitations. The display approach incorporated in Momentum Bars differs from those of existing techniques in that a user can assess the progress of the markets natural dynamics (distribution) over time by viewing continuous distribution patterns in user defined increments that are visually apparent as vertical price bars containing the necessary data points to perform typical statistical and technical analysis studies

Long’s basic view is that market activity is "regulated" within a synthetic environment defined by segments of time and "controlled" by what market participant's perceive as value in an underlying product. Time governs the distribution of price and its extent -- i.e., its range, its duration, and the ability for market participants to participate in the market; and price is simply a measure of how market participants perceive value at current levels or as expected appreciation/depreciation in the future."

Time-price configurations are the most common unit of measurement that market participants use to define how distribution patterns are recorded in the market. A market viewed in this context however, distorts the legitimacy of "value" by treating every segment of transaction data as relevant and meaningful information, including distribution patterns that evidence little or no signs of development equally to those that evidence exaggerated signs of development in the measurement and calculation of statistical and technical analysis studies. As a result, statistical and technical studies are unduly sensitive in markets that evidences little signs of distribution, and lagging in markets that shows signs of abnormal development."

Price is the only mechanism that markets use to balance or rationalize supply and demand. Introductory economic theory asserts this, and econometric models are built assuming this. It is the only market component participants rely on when making investment decisions, and it is the only variable of concern when assessing risk in an underlying product. Value however, is not defined as a measure of concentrated activity at some arbitrary price level. It is the expected appreciation or depreciation of price that best measures what market participants perceive as future valuation. Hence, a charting environment that depicts value free from the constraints of time replicates these beliefs in a standard that is easily measured and defined."
Long’s approach to market dynamics underscores the impossibility limiting the markets natural development (distribution) to any particular period of time. Distribution patterns occur over natural time-periods sometimes minutes, sometimes hours, days, weeks, and even months. “A market is in genuine development and distribution when price is moving in a series of higher highs or lower lows to correct an imbalance perceived by participants.”

Key to understanding and acting on data as reflected in the advance made by Momentum Bars however, is not simply the ability to configure data in a format that depicts price distribution patterns uniformly, instead, it is in the ability to identify those periods when a market is in genuine distribution and development where data organized in fixed price increments helps the user better understand and identify trends in the market. It is also in how abnormal distribution patterns and distribution patterns that evidence little/no signs of distribution are managed. For instance, the so-called sideways congestion, a market condition in which price fluctuates in a relatively narrow range, is less apparent using the Momentum Bars charting technique. Its charts provide a far more accurate description of price development than standard bar charts based to time periods or specific numbers of ticks.

Moreover, when a market experiences abnormal activity (increased volatility ranges) Momentum Bars respond more far more quickly than conventional charting techniques, giving their users definitive signals on which they could act more quickly to initiate a sell if they were long; a sell if they wanted to go short; or a buy when they saw that the downward move was over and that market going up again. For instance, if the Dow Jones Industrial Average moves downward 300 points in one hour, time-based bar charts and tick-based bar charts will be slow to send “signals” to tools of technical analysis, thus prohibiting a user from using a technical analysis tool efficiently. A half-hour bar chart would show only two vertical price bars, and compile only two openings, two highs, two lows and two closes for the entire 300 point move in the DJIA in one hour. A tick might or might not be more sensitive depending on how many ticks occurred and at which prices the market recorded transactions. However, a chart comprised of Momentum Bars, each representing a 5 point move for example, would show at least 60 separate succeeding vertical bars, each with its own open, high, low and close. A chart defined by 2 point Momentum Bars would have 150 separate succeeding vertical price bars, and a chart representing 10 point Momentum Bars would have 30 separate succeeding vertical price bars.

Momentum Bars are unique and do not resemble any other price driven charting methods. In fact, they do not appear anywhere in the financial literature. They describe price behavior in a way that has never been done before using standard bar charts. What’s more, they lend themselves readily to the tools of technical analysis (Aroon, Bollinger Banks, Chaiken A/D Oscillator, Chande Momentum Oscillator, various types of Directional Movement, Danton Stop, Klinger Oscillator, MACD, MESA Sine Wave, various types of moving averages, Parabolic SAR, Relative Strength Index, Relative Volatility Index, Stochastic Momentum Index, Stochastic Oscillator, Stochastic Volatility Index, and Williams %R as well as comprehensive tools such as Elliott Wave Analysis or Shock Wave Analysis to give some divergent yet applicable examples) that are applied to current types of bar charts can be applied to charts using Momentum Bars.

In sum, existing technical analysis systems allow users to organize and in some ways analyze distribution patterns as they occur. In each of these systems, however, the user can only evaluate data using pre-set segments of time or by using abstract price-driven methods to display data. Those limitations restrict a user's ability to gain a full perspective on distribution patterns in the market and hinder users from accurately predicting trends within the market.

Momentum Bars are a unique and major contribution to the advancement of technical analysis.

 

Marvin,

Nice posts. It is good to see that I'm on the same logical path as others in this regard. The first long excerpt accurately summed up my own observations regarding traditional price bars. I presume from the explanation that "MBars" or "Momentum Bars" are the same thing as what I describe as Equal Range bars. I think my term is far more descriptive than muddying it up with the concept of momentum but that's just me on my soap box.

Thanks for posting the article!